Nothing in this life is permanent. As hard as it may be to face up to it, business owners have a duty to ensure that future plans are in place when the time comes to depart.
Rather remarkably, though, almost half of family business owners don’t have a current succession plan. Without this strategy in place at the crucial handover point, chaos could follow. It’s no great coincidence, then, that only a meagre 12 per cent of family-run establishments make it to their third generation.
Failing to create a plan can have disastrous consequences for both the business and employees. Should the head of the company have to step down suddenly or pass away, there’s the issue of who inherits the business and who takes to the helm.
Understanding the law
Some aspects of this issue are clear, and others less so. The law dictates that in the event of the owner passing away, the company shall pass to the heirs of the person in question. According to article 300 of UAE Federal Law, the company shares are directly transferred to the heirs of the business.
While the law covers the ownership rights of heirs in-depth, it does not have any such procedure as to who will take over the business on a professional level. Without some model or plan in place, there is a chance of uncertainty as to how this issue should be handled.
In the unexpected event of a business owner passing on, there could be a great deal of confusion. This lack of clarity when it comes to who should take on the most important role in the company could not only slow down the business, but also cause unimaginable issues for those within its ranks.
A change of leadership can be a turbulent time, throwing up challenges and disruptions that can destabilise a business. Similarly, the selection of a successor can also be unsettling for both a family and a business and must be handled skillfully and diplomatically. By addressing the latter in advance, you will not only avoid any potential issues but you also strengthen the business for the remainder of your tenure, by instilling certainty and a sense of forward-thinking.
As I see it, there are a few crucial considerations of which each and every entrepreneur ought to be aware.
The topic of succession may be taboo
When it comes to ownership of a business, UAE federal law is very clear that the shares should be directly transferred to the heirs of the incumbent upon their passing. However, the choice of a successor to run the business is not stipulated. For many families it is a subject they are reluctant to discuss. Leaders too are often loathe to appoint a successor for fear that it will undermine their leadership to have an understudy waiting in the wings. In truth, succession planning will only strengthen your leadership.
Other business leaders avoid choosing a successor while they are still in charge because they are worried about causing resentment and jealousy, which could unsettle the business. It is true that the matter must be handled with the utmost care and sensitivity in order to avoid stirring up rivalries as much as possible. Provided your decision is based on sound business principles and the successor you choose is the best person to assume the role, you should not fear this any more than any other decision you have to take for the benefit of the business.
Ultimately, it is a decision that will have to be made one day and the sooner you tackle it, the more time everybody will have to grow accustomed to it.
The qualification of the successor
The appropriateness of your chosen successor to go on and lead the business will depend largely on their education. Whether through higher education at university or business school, or through ‘on the job’ training, they will need to have a good grasp of the fundamental principles of modern business management. It is a good idea for them to work in other sectors to gain a broader perspective and a sense of confidence.
This will also help in establishing loyalty among other members of staff. If they see their chairman being replaced by an uneducated, inexperienced successor they may well feel demotivated. If, however, they see a successor who is well qualified and has ‘earned his stripes’ in other industries, they are likely to have more faith that the business is in good hands and their own position within it is not being compromised.
Building rather than overturning
Once a successor has been chosen, the process does not stop there. Now it’s time to immerse them in the culture and practices of the business so that their assumption of the leadership role will be a smooth transition that builds on, rather than overturns, everything that has gone before.
Research has shown that this model of continuous training of potential business successors creates leaders who consistently outperform those who have not been groomed in the same way. To me, it makes perfect sense. The more familiar you are with every aspect of a business, the better prepared and able you will be to take control of that business when the time comes.
As I mentioned earlier, when a business changes hands often the transition is not a smooth one. No matter how well prepared the successor is, there will be challenges that cannot be foreseen. To mitigate the effects of this disruption, it’s important to put measures in place to protect the business’ finances and values. One of these measures could be a restructuring of the business to allows for a level of shared responsibility when it comes to major business decisions.
Creating a board and a voting system will go some way to ensuring that there are no rash decisions made. Start planning for this now and leave nothing to chance. Within your succession plan – and indeed within your CEO will – each element of how the system should work needs to be thought through.
It may also be worth orchestrating a transitional period, in which you take a step back from leading the business but remain on the board. This practice is growing in popularity but, of course, it does depend on having the time to implement such a transitional period. The sooner you start planning, the greater your options will be.
The ambitions of the successor
While it’s essential that you consider how the successor will affect the business, you should take into account how the business will affect them. We all have our own personal aspirations and it’s when we align these with our business goals that we are able to achieve outstanding results for ourselves, our businesses and our nation. So consider your successor’s ideas and ambitions and make these part of the succession plan.
Many people who step into a business leadership role are driven by the same aspirations: to open up new career opportunities, to gain a sense of achievement, to enjoy a superior lifestyle and to have control over their future. When grooming your successor to take over from you, try within reason to make sure that these goals are met. After all, a satisfied and contented leader is certain to be a dedicated one.
Securing the future as an ongoing process
There are two important points to keep in mind when addressing the subject of succession planning: one is that it’s never too early to start; the other is that it is a continuous process. Businesses grow and evolve all the time; make sure your successor is able to flex with each change and is fully up to speed with the current situation and ready to step into your shoes at any point in time.
There are several reasons why a business changes hands. Ideally the incumbent chooses to step aside and the successor moves smoothly in to fill the role. But illness and death can necessitate a more sudden transition and your company needs to be prepared. Make succession planning an undertone that echoes throughout every aspect of the business model. Being forward-thinking and ensuring that there is a plan in place ahead of time will lead to an easy transition and only enhance your legacy.
Mohamed Hareb Al Otaiba is the chairman of UAE company MHAO